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Welcome success of Diaspora bond

Welcome success of Diaspora bond
July 5, 2017

A sense of elation spread among Nigeria’s economic managers with the report that the country’s pioneer tranche of Diaspora bond was over-subscribed by 130% to garner as much as $300 million. Launched recently to raise an initial sum of $300 million at a rate of 5.625% and a tenor of five years, the bond attracted initial offers of 190% of the value, which eventually settled at 130% at final price.

According to Director General of the Debt Management Office (DMO) Dr Abraham Nwankwo, “The bond was structured as a retail instrument to appeal to a wide base of investors and was offered through private banks and wealth managers rather than the institutional investors that normally deal in large volume transactions.” This according to him was facilitated by registering the bond with the United States Securities and Exchange Commission (US SEC), which is renowned globally as a strict regulator of the capital market. Registering the bond with US SEC provided the opportunity for it to enjoy a wide subscription base.

Diaspora bonds are loan instruments issued by countries on the international finance market to enable their citizens living abroad to invest in home countries and thereby contribute to their development. The instrument has been used by other countries such as India, Israel, Lebanon to name a few, in benefiting from the resources of their nationals living abroad. Nwankwo further said for the bond to “have received the approval of the US SEC indicates that the highest level of transparency and accountability in the economic process has been attained”. This he believed has significant implications for the country’s “credit rating, transparency rating and financial market development rating index.” Minister of Finance Kemi Adeosun further underlined the bond’s success when she said Nigeria is the first African country to issue a bond targeted at retail investors in the US with the high profile regulation of US SEC.

As indicated by the authorities, the immediate follow-up to this development is the establishment by the government of a programme to raise funds from Nigerians in Diaspora for the purpose of national development. This consideration makes Diaspora bonds more favourable to a beneficiary country than foreign loans that have some condescending strings attached to them. In that context the country stands to benefit tremendously, given the huge stock of resources controlled by Nigerians in Diaspora, who can be encouraged to think of investing in the country through this vehicle and thereby help their fatherland.

However this expectation also imposes on the Nigerian government the onus to get its act together since funds obtained under special vehicles such as Diaspora bonds should not be seen as mere pocket money for a privileged few but are expected to enjoy robust management practice. This is where the government needs to substantially restructure the country’s fiscal terrain to facilitate a system-wide regime of transparency and accountability. Even if the funds may originate from Nigerians in Diaspora, they are part of the global financial system and qualify to be treated with the highest level of discretion.

Against the backdrop that the Diaspora bond will be deployed to the development of capital projects, the need exists to establish a seamless interface with the budgetary process, with the full and unfettered oversight of the legislature at every tier of governance. A typical area of concern is the unhealthy relationship between the executive and the legislature in the states which has created an unfortunate situation whereby the oversight role of the latter over public finance is de-emphasised. Considering that much of the funds from the Diaspora bond will be deployed to capital projects in the states, the need arises to address this issue adequately in order to vitiate abuse and likelihood of diminished interest in the venture by Nigerians in Diaspora.

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